UK energy price cap to rise 54% to £1,971

UK household energy bills will rise £693 ($940) to £1,971 in April as the energy regulator Ofgem has announced a 54% energy price cap increase amid soaring oil and gas prices.

Those on default tariffs paying by direct debit will see an increase of £693 from £1,277 to £1,971 per year, on average. Households who use prepay meters will see an increase of £708 from £1,309 to £2,017.

Read more: Rishi Sunak announces £350 for UK households energy bills

The move will affect 22 million households that are on a default ‘standard variable’ tariff, over which the price cap sets a ceiling

The new level, which comes into force on April 1 and lasts for six months, is the highest since the cap on energy bills was introduced. It also exceeds average bills going back to 2009, according to official data on domestic electricity and gas costs.

Jonathan Brearley, Ofgem chief executive, said that the increase reflected “the unprecedented increase in global gas prices” in which wholesale prices have quadrupled over the past year.

He acknowledged that "this rise will be extremely worrying for many people, especially those who are struggling to make ends meet."

The cap covers consumers on standard variable energy tariffs, rather than fixed tariffs, equating to around 22 million households, and will come into effect from April following a period of surging wholesale energy costs.

Read more: Energy price cap: Who will be hit hardest?

The cap rise, which follows a 13% increase in October, adds to a cost of living squeeze for households who are also facing higher shop prices, an increase in national insurance, and rising interest rates.

The government has announced new measures to protect households from the painful increases, with Chancellor Rishi Sunak cutting £200 from all households’ bills and giving further help for vulnerable.

The CBI, which represents businesses across the UK, has said the rise in the price cap was "inevitable" but will "pile more pressure on squeezed household incomes."

It urged the government to work with energy suppliers to ensure its measures to tackle spiralling costs are "effective".

"Short-term support must go hand-in-hand with a revamped retail energy market, setting a higher bar for market access and tougher stress testing for suppliers," said CBI chief policy director Matthew Fell.

Senior personal finance analyst at interactive investor Myron Jobson, said that after a winter of discontent, April is set to be the "cruellest month in decades" for household finances.

Claire Gambles, EY-Parthenon, turnaround & restructuring strategy partner said concerns will remain over the squeeze on consumer incomes given the widespread increase in prices and the potential for the energy price-cap to rise again in October 2022.

"The impact on business is also likely to become more apparent in 2022, in particular companies in ‘energy intensive’ sectors whose hedging facilities will expire in 2022, and SMEs who will see fixed-price deals come to an end while wholesale prices remain high,” she said.

Watch: How to prevent getting into debt